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Triveni Engineering and Industries Ltd Management Discussions.

THE SUGAR MARKET Market Analysis

Sugar industry in India is one of the significant contributors to GDP from agriculture,
and supports 50 million farmers. It also provides employment to around half a million
workers directly in sugar mills. This is one of the key reasons for the high degree of
regulation in the sugar industry.

The industry witnessed two successive years of record production, backed by the
significant increase in sugarcane production. This was achieved on account of favourable
monsoon in the past two seasons, coupled with the strong cane development initiatives
taken by the sugar mills and supported by the farmers. There has been a significant
increase in the yield and recoveries, leading to record sugar production, even though the
increase in area under sugarcane cultivation is marginal. During SS 2018-19, sugarcane
planting has increased by 9.2% and the total area under sugarcane in the country increased
from 50.42 lakh hectares in SS 2017-18 to 55.02 lakh hectares in SS 2018-19. The increase
in sugarcane area has been mainly in Maharashtra, while in UP, the increase has been
marginal. However, a marginal increase in sugarcane production has been estimated for SS
2018-19, close to 410 million tonnes.

Sugar Production

The countrys sugar production for SS 2018-19 is estimated to be around 33 million
tonnes, marginally higher than the previous season. This will be the countrys highest
sugar production so far, out-performing the previous high of SS 2017-18. This estimated
increase in production is due to record production by the states of Maharashtra and Uttar
Pradesh. As per recent estimates, Uttar Pradesh is expected to produce around 11.82
million tonnes of sugar, followed by Maharashtra at over 10.7 million tonnes, while
Karnataka is expected to produce around 4.3 million tonnes of sugar. The substantial
increase in sugar production in Maharashtra is attributable to improved climatic
conditions. In Uttar Pradesh, continuous cane development efforts made by sugar mills, and
the widespread adoption of new high sugared and high yielding varieties of sugarcane
suited to the present subtropical climatic conditions. This has led to higher sugarcane
yields with improved sugar recovery, resulting in record sugar production.

Sugarcane Pricing

Sugarcane pricing has always been a subject of both the Central and State Governments.
The Central Government announces Fair & Remunerative price (FRP) for sugarcane, and
FRP for SS 2018-19 was fixed at 32,750 per MT, higher by 3200 per MT over the previous
season. The FRP so announced is subject to base recovery of 10%, and in the event of
recovery beyond 10%, the FRP will increase by 32.75 /quintal for every 0.1% increase in
recovery. Various states, such as, Uttar Pradesh, Punjab & Haryana etc., announce
their own price, which is termed as State Advised Price (SAP). The SAP in Uttar Pradesh
remained unchanged at 3 3,150/MT for general variety and 33,250/MT for early variety for
SS 2018-19. Sugarcane pricing is a significant factor in the competitiveness of the Indian
industry in terms of sugar exports. In view of high cane cost and the resultant higher
cost of sugar production, it is not possible to compete with the export prices without
help from the Government. Sugarcane price in India is 70-80% higher than that in Brazil or
Thailand. For self-sufficiency, cane pricing policies would need immediate
rationalisation, with focus on bringing them in line with global practices. Indian
sugarcane farmers are mostly small and marginal, and therefore, the Governments attempt
to protect them with a remunerative cane price and assured off-take has merit. However,
unchecked increase in cane prices create mismatch in input and output prices at various
stages of the sugar cycle and hurt the sugar sector. Such a situation is not desirable for
the industry and thus, the burden of cane price on the industry should be based on
commercial considerations only, with provisions for support by the Government in the years
of cane pricing abrasion. This alone will lead to realistic sugar prices and help the
sugar sector to aggressively compete in world trade. The present system of cane pricing is
not working effectively, as is evident from the fact that as on March 31, 2019, cane price
arrears to farmers stand at 320,000 crore, which means that one-fourth of the cane price
to the farmers is still unpaid. Even though the Government supported the industry with
soft loans, benefits of Buffer stocks, subsidies and incentives, etc., the root cause of
the problem is the mismatch between cane price and sugar price. An excessively high
sugarcane price makes Indian sugar uncompetitive globally.

Sugar Prices

Domestic

The record production in SS 2017-18, coupled with unchecked despatches, led to the
collapse of sugar prices during the early part of the year under review. The Government
promptly sprang into action and announced Minimum Selling Price (MSP) of sugar with effect
from June 2018, at 3 29/Kg. It also simultaneously introduced monthly release mechanism
to limit oversupply of sugar in the market. These interventions had the effect of bringing
about stability in the sugar prices, albeit artificially. The spot price movement in Delhi
for FY 19, moved up to 334.80 per kg during June 2018, and then came close to MSP levels
by end of September 2018. Thereafter, prices hovered in the range of 330 to 331 per kg
between November 2018 and Mid February 2019. To improve cane price payment capacity, in
February 2019, the Government decided to raise the MSP to 331 per kg, and also directed
that no sugar can be sold below the MSP by the sugar factories. After revision in MSP
during February 2019, sugar prices are moving closely in the range of 331 to 332 per kg.

Global

Global surplus due to phenomenal rise in production in some of the Asian countries kept
global sugar price range-bound. Output from Thailand is likely to remain close to 14.6
MMT, slightly higher than the previous season. EU may produce 16.97 MMT for SS18-19,
whereas production in Australia is estimated at 4.6 MMT. Production in Pakistan is down to
5.2 MMT against 7 MMT of the previous season, thanks to decline in cane area due to
drought conditions, as well as better and timely remuneration of competitive crops. Center
South Brazil has produced 26.5 MMT of sugar. Overall, surplus for the season is estimated
at 5 MMT,

Raw sugar contract moved in the range of 12 to 13.9 cents/ pound during the year. It
has further tumbled in future contracts due to depreciation in Brazilian currency. As soon
as the crushing started in the Asian countries, sugar prices started moving downwards.
After touching a peak of 13.9 cents/pound in October 2018, the market never recovered
during the year. Likewise, White sugar, which touched a peak of around USD 390/tonne,
moved conservatively during this period against the rumours of Indian Raws for the world
market and it fell down significantly to the range of USD 320 to USD 330 making it
difficult for Indian sugar industry to export sugar.

Demand-Supply Scenario

Domestic

Indian Sugar Industry

The countrys sugar production for the last two seasons was significantly higher than
the consumption, resulting in a huge stockpile. Production for the current sugar season
(18-19) is estimated to be the highest ever produced by India, which may replace Brazil as
the highest sugar producing country globally for the current season. Sugar output as on
March 31, 2019 has reached close to 29.8 MMT which is up by 1.5 MMT from the previous
year. With a large number of mills in Uttar Pradesh still operating, overall sugar output
for SS 18-19 is likely to surpass 33 MMT. With opening stocks of 10.7 MMT, consumption of
25 MMT & Physical exports to the tune of 3-3.5 MMT, the season is likely to end with
carry-over stocks of ~15 MMT, clearly an indication of challenging conditions for the
Industry.

UP Sugar Industry

Historically, the UP had been the largest producer of sugarcane in the country but only
the second-largest producer of sugar. This was mainly due to higher diversion of sugarcane
for manufacturing alternate sweetener, and also due to the relatively much lower
recoveries and yield than the major sugar producing state of Maharashtra. However, for the
past two years, there has been a turnaround in the UP sugar industry, owing to rapid
propagation of a new variety of sugarcane Co-0238, which has resulted in unprecedented
increase in recovery, along with rising yields.

This variety was initially planted in 2013-14 in UP and now it covers about 1.76
million hectares, ~69% of UPs total sugarcane area in SS 2018-19. The average cane yield
rose to 79 tonnes/ hectare in SS 17-18 from 62 tonnes/hectare in SS 12-13. The estimated
yield in SS 18-19 is ~80.5 tonnes/hectare. Similarly, the average recovery increased from
9.18% in SS 2012-13 to 11.48% in SS 18-19. This has led to a paradigm shift in the states
sugar industry and it is estimated that UP will be the highest sugar-producing state in
the country this season also, similar to last season.

The area covered under this high-yield high-sucrose variety in various sub-tropical
regions of UP in SS 2018-19 is depicted below:

Regions

2017-18

2018-19

Total Cane area

Area under Co-0238

% share in total area under sugarcane in the region

Total Cane area

Area under Co-0238

% share in total area under sugarcane in the region

(lakh Ha)

(lakh Ha)

(lakh Ha)

(lakh Ha)

West UP

5.68

3.43

60%

6.18

4.45

72%

Central UP

10.67

6.58

62%

11.85

9.01

76%

East UP

6.65

2.07

31%

7.48

4.11

55%

State

22.99

12.08

53%

25.52

17.57

69%

This variety is not extensively present in East UP as the crop cannot withstand excess
water-logging issues, which are prevalent in that region. This overall change has led to
better productivity for sugar mills and higher income for farmers, but at the same time,
it has also resulted in overproduction of sugar in excess of domestic consumption. Higher
sugar inventories necessitate blockage of working capital and decline in cane payment
capacity, leading to increase in cane arrears.

Global

With an upward revision of sugar output estimates in 2018-19, the world surplus is
likely to go up to 3.40 to 3.50 MTRV (Million Tonne Raw Value). Production estimates have
been revised to 189.5 MTRV, whereas consumption is estimated to be up by 0.5 MTRV, close
to 186 MTRV. This surplus is significantly down year-on-year due to sharp reduction in CS
Brazils output, apart from reduced production from EU, Thailand, Pakistan & Russia.
The final cane figure from Brazil was close to 570 MMT, with sugar output at 26.6 MMT.
Brazil also produces ethanol from corn and the production has been rising, which has
resulted in boosting the total ethanol production to 31 Billion Ltr. The capacity of corn
ethanol is increasing for the upcoming season and is likely to compensate for the drop in
cane ethanol production for SS 19-20. Like India, sugar recoveries in Thailand helped the
millers produce sugar close to 14.6 MMT. Sugar output in European Union was noted at 16.97
MMT, down by 3 MMT from SS 17-18.

Government Policy

The sugar industry in India has been a regulated industry due to the large number of
stakeholders. The regulations are both from the Central Government and State Governments.
During the past year, apart from fixing of sugar cane prices, there have been many
significant interventions by the Government in the form of fixation of Minimum Selling
Price for sugar (MSP), price fixation for ethanol supplies to OMCs, monthly release
mechanism, creation of buffer stock of sugar inventory, financial assistance by way of
soft loans to sugar mills to make cane payment, support for industry for undertaking
exports, support to the industry for setting up of new ethanol capacity etc. These
policies enabled the sugar prices to remain stable in spite of inventory overhang, and
also helped the mills make substantial payment to farmers, even though a significant
amount of unpaid cane liability still exists.

Considering the impact of huge surplus sugar inventories on sugar prices, the
Government implemented Reverse Quota Mechanism and later monthly release mechanism to
limit supplies and to stabilise the market for better cash-flows to the industry in order
to facilitate timely cane payment. Revised OGL Export policy under subvention scheme was
mandated in SS 2017-18, but only a small quantum of sugar could be exported in view of
inadequate time to manufacture raw sugar and limited demand of white sugar. With opening
stocks for SS 2018-19 at a historical high of 10.7 million tonnes, equivalent to 4 months
consumption, the Government announced further tranche of exports for SS 2018-19, even
before the commencement of the season so that the sugar mills could enter into contracts
well in time and plan manufacture of raw sugar. Simultaneously, the Government also
announced some financial assistance to sugar mills towards payment of cane price, subject
to completion of certain conditions, besides extending freight subsidies on exports. At
present, cane price as well as sugar price (MSP), being essential commodities, are being
controlled by the Government.

The concept of Buffer Stocks was reintroduced after a long time to limit supplies in
the market for the stability of sugar prices. and to help the Sugar Industry meet a part
of the inventory carrying costs associated with the high inventories held. All the sugar
mills were given the option to participate in the scheme, and buffer stocks were created,
aggregating to 3 million tonnes, across the country.

The Government of India took various measures to support the sugar industry in view of
overproduction in the country and resultant challenging conditions:

To provide assistance to sugar mills by defraying expenditure towards internal
transport, freight, handling and other charges to facilitate export during SS 2018-19

@ 31,000/MT for the mills located within 100 kms from the ports, @ 32,500/MT for the
mills located beyond 100 kms from the ports in the coastal states and @ 33,000/ MT for
mills located in other than coastal states or actual expenditure, whichever is lower. The
total expenditure on this account would be around 31,375 crore, which will be borne by
the Government.

Financial assistance of 313.88 per quintal of cane crushed in SS 2018-19 to sugar
mills to offset the cost of cane. The assistance shall be provided to only those mills
which fulfil the conditions as stipulated by the Department of Food & Public
Distribution, including mandatory export obligations. The total expenditure on this
account would be around 34163 crore, which will be borne by the Government.

To ensure payment of sugarcane dues of farmers, both the above-mentioned assistance
would be credited directly into the accounts of farmers on behalf of sugar mills against
cane price dues payable to farmers against FRP, including arrears relating to previous
years. Subsequent balance, if any, would be credited to the mills account. Assistance
shall be provided to those mills which will fulfil the eligibility conditions as decided
by the Government.

Soft loan (with interest subvention of 7% for a period of one year) for the payment of
cane price of SS 2018-19.

The Government of Uttar Pradesh also announced various financial aids for the industry
to liquidate the sugarcane arrears  Cane price grant of 34.50 per quintal and soft
loan at subsidised rate to pay the cane dues of SS 2017-18.

THE ETHANOL MARKET

Market Analysis

India is the fourth-largest producer of alcohol globally, and the leading producer of
alcohol in the South-East Asian region, with about 65% share. The Central Government has
been actively promoting the production and blending of Fuel Ethanol with petrol, and has
targeted 10% blending (EBP10). Towards this, various other feedstocks like B - Heavy
molasses (an intermediate product of the sugar manufacturing process) and sugarcane juice
have also been allowed for ethanol production, thereby enhancing its availability for
blending. Apart from being environment-friendly, ethanol also ensures fuel security for
the country, besides conserving foreign exchange and helping the sugar industry get
additional revenue stream to minimise the impact of the inherent cyclicality in the
industry.

Demand Drivers

Population growth and increasing urbanisation are pushing the need for mobility.
Indias transportation sector is growing rapidly, with dependence on oil also concurrently
rising. Considering the burgeoning oil import bill and the growing concern for the
environment, there is need to adopt non-conventional fuels. The blending of ethanol at 5%
with petrol helps in reducing dependence on oil, besides lowering pollution, while saving
36,000 crore in foreign exchange annually. Ethanol has about 30% oxygen, which in turn
enables fossil fuel to burn much better within the engine. This significantly reduces the
emissions. Ethanol, being a value-added product from molasses - a co-product in the
manufacture of sugar from sugarcane, directly benefits the sugarcane farmers across the
country.

Demand-Supply Scenario

Currently, out of the 530 sugar mills in the country, only about 133 have the
capacities to produce fuel ethanol in addition to 24 standalone distilleries. The
countrys total production capacity is 224 crore litres of ethanol. In Dec 2018-Nov 2019
(marketing year), Oil Marketing Companies (OMCs) released tenders totalling 329 crore
litres to fulfil the 10% blending programme, against which only 260 crore litres of LOI
were issued and 237 crore litres of PO have been issued . If the entire 237 crore litres
is blended, it will be 7.2% of blending which will be the highest levels to be achieved.
To achieve 10% blending, distillation capacities need to be increased, which requires
increasing the existing capacities as well as the establishment of new3capacities.

With focus on use of clean fuel to improve the environment, to rationalise foreign
exchange outflow on import of crude and also to facilitate the sugar industry to improve
their financial position and their cane price payment capacity, the Government of India
has announced the National Biofuel Policy 2018.

Government Policy

The various policy initiatives undertaken by the Indian Government for Ethanol
blending:

The country has experienced two consecutive years of bumper production of sugarcane and
sugar. This has resulted in higher volume of molasses production as well. With the
appreciation of the issues being faced by the sugar industry and accumulation of arrears
to farmers, the Governments focus on production of ethanol gained momentum during the
year. The Government announced the National Biofuel Policy of 2018 for accelerated
development and utilisation of biofuels in view of the current direct and indirect
subsidies to fossil fuels and distortions in energy pricing.

The Policy expands the scope of raw material for ethanol production by allowing use of
Sugarcane Juice, Sugar containing materials like Sugar Beet, Sweet Sorghum, Starch
containing materials like Corn, Cassava, as well as damaged foodgrains like wheat, broken
rice, rotten potatoes, which are unfit for human consumption, for ethanol production.

In the determination of bio-diesel purchase price under the National Biofuel Policy,
the Minimum Purchase Price (MPP) for bio-diesel by the OMCs will be linked to the
prevailing retail diesel price. The MPP for bio-ethanol will be based on the actual cost
of production and import price of bio-ethanol, and will be determined by the Biofuel
Steering Committee and decided by the National Biofuel Coordination Committee. For ethanol
supplies from December 1, 2018 to November 30, 2019, prices are fixed as:

Ex-mill price of ethanol will be fixed derived out of C heavy molasses to 343.46 per
litre

B-heavy molasses/partial sugarcane juice at 352.43 per litre

100% sugarcane juice at 359.19 per litre

This is subject to changes to be announced by the Government of India from time to
time. Production of ethanol using B-heavy molasses and 100% sugarcane juice will
facilitate two objective:

a) restricting availability of sugar in the years of surplus production, and b)
achieving 10% or higher ethanol blending, going forward.

In June 2018, the Government, with a view to supporting the sugar sector and in the
interest of sugarcane farmers, approved a proposal for extending soft loans of about 3
15,500 crore through banks to sugar mills and molasses-based standalone distilleries. This
has been done under the Scheme for extending financial assistance for enhancement and
augmentation of ethanol production capacity, for which the Government will bear further
interest subvention amounting to 33,355 crore for five years, including moratorium period
of one year.

Further, in March 2019, the Cabinet Committee on Economic Affairs gave its approval for
funds amounting to 32,790 crore towards interest subvention for extending indicative loan
amount of 3 12,900 crore by banks to the sugar mills under "Scheme for extending
financial assistance to sugar mills for enhancement and augmentation of ethanol production
capacity" for the 268 applications/proposals, in addition to 31,332 crore already
approved by CCEA in June 2018.

CCEA has also approved 3565 crore towards interest subvention for extending indicative
loan amount of 32,600 crore by banks to the molasses-based standalone distilleries to
augment capacity through installation of incineration boilers and other methods in the
existing distilleries. This is aimed at achieving ZLD and additional equipment for ethanol
production, as well as for setting up of new standalone distilleries for ethanol
production. A separate scheme for the molasses-based standalone distilleries would be
formulated accordingly by the Department of Food & Public Distribution.

As per industry sources, there is significant spurt in setting up of new ethanol
facilities across the country and this is expected to further increase ethanol
availability and blending percentages, going forward.

THE CO-GENERATION MARKET

Co-generation is a decentralised incremental power addition that has many associated
benefits, such as mitigated risk of loss of power to large areas due to shutdown, reduced
T&D losses, local power supply, and employment generation. The importance of having
high efficiency grid connected co-generation power plants for generating exportable
surplus has been established well in the Indian sugar mills.

Market Analysis

The installed power generation capacity in India was 356.1 GW as on March 31, 2019, out
of which 78.3 GW was renewable power. The Government has set a target of 175 GW renewable
power installed capacity by the end of 2022, which includes 60 GW from wind power, 100 GW
from solar power, 10 GW from biomass power and 5 GW from small hydro power. The all-India
potential of bagasse-based co-generation is estimated at 7,000-7,500 MW. UP is the leading
state in bagasse-based power generation, with an installed capacity of around 1,2003 MW.

The3 potential of bagasse co-generation within UP is around 1,500 MW, from over 130
sugar mills. The sugar mills work on a Power Purchase Agreement (PPA) model with the Uttar
Pradesh Power Corporation Ltd. (UPPCL) to export surplus power from the co-generation
plants.

Demand Drivers

There has been a sharp increase in energy consumption, triggered by high levels of
economic growth and industrialisation. Power demand in the residential sector has also
increased. Limited fossil fuel availability requires usage of non-conventional fuel
sources for power generation. Bagasse co-generation not only reduces dependence on
conventional fuel sources but also helps in saving precious foreign exchange by limiting
the import of coal. The Clean Energy so generated with bagasse has a favourable impact on
climate. Indias climate action plan aims for 40% installed capacity from non-fossil fuel
by 2030. Using bagasse for power generation also leads to significant revenue for sugar
mills through the sale of electricity.

Demand-Supply Scenario

The potential for bagasse co-generation lies mainly in the nine key sugar-producing
states, especially in U.P., since it is one of the highest sugarcane-producing states.
Lately, due to availability of cheaper power, some reluctance is being observed on the
part of UPPCL, the offtake of power of UP regarding purchase of bagasse based
co-generation power. The rates for the export of power are proposed to be revised
downwards, as per the draft Captive and Renewable Energy generation plants regulations,
recently issued by UPERC  the state level regulator.

Government Policy

The Government is providing various incentives and schemes to promote grid interactive
biomass power and bagasse based co-generation in sugar mills. Subsidy under Central
Financial Assistance is provided for private sector projects, such as IPP Grid interactive
biomass combustion power projects and bagasse co-generation. Central Financial Assistance
@ 3 2.5 million/MW for bagasse co-generation projects with a total outgo of 31.7
billion, with a physical target of 740 MW between 2017-18 to 2019-20, is planned by the
Government.

BUSINESS REVIEW Sugar Business Review

With its synergistic and strategic business units, the Company is continuously sowing
new seeds to nurture greater success, year-on-year - to drive increased value for its
stakeholders.

Sugar Business

Triveni operates seven sugar units spread across the State of Uttar Pradesh (U.P.).
Most of its mills are located in Western and Central U.P., while one unit is located in
Eastern U.P. The share of Triveni in UP for SS 2018-19 is ~7.5% of sugarcane crushed,
while in sugar output, it is equivalent to ~7.9% of the States production. The Company
manufactures refined sugar, which constitutes ~40% of the total sugar production and
fetches a premium over normal sulphitation sugar. The refined sugar is supplied to high
grade end-users, thereby creating a niche customer profile. The Company also produces
different grades of pharma sugar that can be customised as per the user requirements. Its
seven sugar units strictly adhere to best-in-class manufacturing processes and quality
benchmarks, and supply sugar to major multinational soft drink companies, leading
confectionery manufacturers, breweries, pharmaceutical companies and leading ice cream
producers for their requirements.

Performance Overview

The Company achieved record recoveries during SS 2018-19 at 11.79%, which is 41 basis
points higher than the previous season. Even though the Company crushed lower sugarcane as
compared to last year owing to lower yields, it produced almost similar level of sugar as
previous season due to record recoveries of sugar. The recovery rate of Triveni sugar
units has been significantly higher than the U.P. state average  the differential
recovery in the present season is 31 basis points more than the state average. The refined
sugar production from the two units of Khatauli and Sabitgarh remained at ~ 40% of the
total sugar production, which will also help Triveni achieve better overall average sugar
realisation. The average domestic sugar price realisation for the Company has been
331,456/MT during the year.

(Million Tonnes)

Units

Sugar Recovery (%)

Sugarcane Crushed

Sugar Production

SS

SS

SS

SS

SS

SS

2018-19

2017-18

2018-19

2017-18

2018-19

2017-18

Khatauli

11.67

11.38

2.12

2.21

0.25

0.25

Deoband

11.52

11.11

1.46

1.50

0.17

0.17

Ramkola

11.54

11.24

1.04

0.98

0.12

0.11

Sabitgarh

11.89

11.03

0.89

0.97

0.11

0.11

Chandanpur

12.40

12.00

0.89

1.00

0.11

0.12

Rani Nangal

12.35

12.00

0.87

0.93

0.11

0.11

Milak Narayanpur

11.50

10.97

0.71

0.78

0.08

0.08

Group

11.79

11.38

7.98

8.37

0.94

0.95

Chandanpur, Milak Narayanpur and Sabitgarh units operate incidental co-generation units
and export the surplus power to the grid. Triveni generated power export revenue of 323.3
crore in FY 19.

Organic Growth through Cane Development Programme

The Company works and engages continuously with farmers to increase farm productivity
through a well-planned Cane Development programme. This programme is carried out with
rigour across all the seven sugar manufacturing units. Trivenis efforts in providing
high-yielding seeds and inducing better agronomic practices have positively impacted the
yields, earning the confidence of more than 3,00,000 sugarcane growers.

These continuous efforts have resulted in increase in area under sugarcane plantation,
leading to increased sugarcane crushing and higher yields. While the state of Uttar
Pradesh showed a CAGR of 7.99% in sugarcane crushed during the past five years, Triveni
Sugar grew by 11.38% during the same period. Similarly, the average recovery improvement
for the state of Uttar Pradesh has been 222 basis points, whereas Triveni successfully
achieved an improvement of 247 basis points during the same period.

During the past few years, the Companys sustained efforts have helped in increasing
the varietal mix towards early and improved varieties of cane, leading to significantly
enhanced recoveries. Focus on plantation of high sugared/high yielding early varieties,
such as Co-0238, Co-0118, Co-98014, CoJ-85 and improved variety CoJ-88, has helped in
transforming the varietal balance. Over these years, the Company succeeded in shifting the
farmers from planting rejected varieties of cane to high yielding high sucrose varieties,
which resulted in overall improvement in the quantity and quality of sugarcane crushing in
all the Triveni facilities.

Besides varietal development, the Company is also working on yield enhancement
activities such as green manuring, intercropping, deep ploughing, planting by trench
method, 4-5 feet planting; single bud planting and planting by upper 1/3rd portion of
cane.

The cane development team works closely with farmers, right from seed preparation to
plantation, pest management, plant protection and harvesting. As part of the programme,
optimising the nutrient content in soil for farming operations is also undertaken. Farmers
are being educated and persuaded about the benefits of these scientific methods through
various channels, such as publicity, door-to-door contact, grower interactions, etc.

SUGAR INDUSTRY OUTLOOK

Based on the initial crop area estimates for SS 19-20, sugar production in the state of
Maharashtra is estimated to be in the range of 7.0 to 7.1 million tonnes, down by 3.5-3.6
million tonnes due to lower planting resulting from drought conditions, whereas the
estimates for Uttar Pradesh remain at the levels of SS 18-19. The area under sugarcane
cultivation in Maharashtra is estimated to be lower by 25% to 30% from a year earlier due
to poor weather conditions. Therefore, the countrys initial sugar production estimate for
SS 2019-20 is ~28.2 to 28.5 million tonnes, on account of of climatic factors as well as
expected diversion for ethanol production.

Indias production at above 28 million tonnes appears to be the new normal for the
country. With consumption almost unchanged during the past three sugar seasons, a policy
is required to manage the surplus sugar without depressing the domestic sugar prices. For
Indian manufactures to be competitive in the global market, it is essential that cost of
production should reduce to the extent of the impact of unrealistic cane price being
imposed on the sugar industry to provide more remunerative cane price to the farmers. This
is the biggest challenge of the policy makers and once it is provided for, sugar
manufacturers will be in a position to export without seeking bail out or subsidies
from the Governments. However, in the short term, the present policies of the Government
towards stabilisation of sugar prices, mandatory exports and financial incentives / soft
loans will keep the sugar industry afloat.

The recent National Biofuel Policy may be a game changer for the sugar industry. The
policy unshackles the sugar industry and permits it to manufacture ethanol for blending
with petrol from B-heavy molasses and sugarcane juice. To encourage production of ethanol,
the Government has fixed higher prices for ethanol produced from B-heavy molasses and
sugarcane juice and is providing subvention of interest on loans availed for setting up
distillation capacities. It would lead to higher production of ethanol and the sugar
production will diminish accordingly. Apart from fuel security and conservation of foreign
exchange, it may provide the much-needed lever to the sugar industry to regulate
production of sugar, and enable it to decide on the product mix of sugar and ethanol based
on commercial considerations. However, long-term commitment of the Government is
imperative to lend support to the ethanol blending programme regardless of crude prices,
and to fix remunerative prices of ethanol for commercially accepted returns on capital
cost incurred in setting up additional distillation capacities.

These interventions and relevant policy changes should help in uncapping the immense
potential of the sugar industry in providing power through renewable energy sources and
green fuel through ethanol blending with petrol. Most importantly, in view of flexibility
to export freely and ability to regulate sugar production, the sugar cycles would become
less pronounced, and the good financial health of the industry will ensure timely cane
price payments to farmers.

Co-generation Business

Bagasse is a fibrous residue left after crushing of sugarcane and is a key co-product
of the sugar industry. Being a renewable fuel, it does not lead to any net carbon dioxide
addition to the atmosphere and is thus regarded as green fuel.

Triveni currently operates three grid-connected large capacity co-generation plants and
three smaller co-generation capacities (incidental co-generation facilities) at its five
sugar units, namely Khatauli, Deoband, Chandanpur, Milak Narayanpur and Sabitgarh units.
The former three large-sized plants are part of the operations of co-generation, whereas
the other three small-sized plants are considered a part of the sugar operations.
Trivenis co-generation plants at Khatauli and Deoband utilise highly efficient 87 ata /
515C steam cycle to maximise efficient usage of bagasse.

After meeting the sugar factorys captive requirement, as well as the co-generation
plants auxiliary power requirement, surplus power from these plants is exported to the
grid. The Company has power purchase agreements with UPPCL for all its co-generation
facilities.

Facilities

The co-generation plants at Khatauli and Deoband utilise highly efficient high pressure
(87 ata) and temperature (515C) steam cycles, and are regarded amongst the most
efficient co-generation plants in India. The Companys smaller capacity co-generation
plants operate mostly on medium pressure steam cycles (46 ata/440C). These plants are
designed to conduct fully-automated operations, using the latest Distributed Control
System (DCS). Highly experienced and skilled manpower operates these plants, thus ensuring
trouble-free efficient operations with high uptime and reliable operations, along with
very high operating efficiencies. The Company puts significant emphasis on maintaining
excellent management of the boiler feed water quality parameters to ensure sustained and
trouble-free operation of the boiler and the turbine.

Unit-wise capacities of the co-generation plants are as follows:

Sl. No.

Name of the unit

Installed capacity

1.

Deoband

22 MW

2.

Khatauli - Phase 1 & Phase 2

23 MW each

3.

Sabitgarh

13.5 MW

4.

Chandanpur

10 MW

5.

Milak Narayanpur

13 MW

Total

104.5 MW

Performance Overview

The operation of the bagasse-based co-generation plant depends, to a large extent, on
the availability of bagasse from the sugar operations. This, in turn, depends on cane
availability for the crush during the season and efficient operations of the sugar
factories. Higher cane availability leads to more season operating days, higher bagasse
savings, and therefore longer operation of the co-generation plants.

The Company has undertaken an extensive and focussed cane development programme in the
command areas of its sugar units, particularly in the past few years. This has led to much
better availability of sugarcane in view of the significantly improved yields and
corresponding increase in availability of bagasse.

The performance of the co-generation plants at Khatauli and Deoband continued to be
excellent, with very high uptime and reliable operations. The requirements of process
steam and captive power of the sugar factory operations were fully met. Apart from captive
supply, bagasse was also procured from outside sources to optimise the co-generation
operations at both the co-generation plants.

The Companys incidental co-generation facilities also performed well and its plants at
Chandanpur, Milak Narayanpur & Sabitgarh units recorded good power export in 2018-19.
Due to increased cane availability at Chandanpur unit, a small capacity low pressure
boiler was installed and commissioned during the crushing season 2017-18, which
facilitated power export throughout the 2018-19 season.

During the year under review, the co-generation units generated 265.8 million units,
while the exports to the grid were 174.93million units. Apart from this, the incidental
co-generation units of Chandanpur, Milak Narayanpur and Sabitgarh exported 403million
units to the State Grid.

Awards & Recognition

The Company lays high level of management focus on the safety of its operating staff,
plants and machinery. The Company has won many awards in the past in the OHS category.

Outlook

The Companys sustained focus on cane development activities in the command areas of
its sugar units should lead to continued better cane availability for crushing, resulting
in higher operating days of the co-generation plants due to enhanced bagasse availability.
The Company is also taking various steps to further improve the efficiency of the sugar
plants operations in order to reduce the process steam consumptions. This will enable
more savings of bagasse for enhanced operation days of the co-generation plants.

Distillery Business

The Company is already operating a 160 Kilo Litre Per Day (KLPD) capacity
state-of-the-art molasses-based distillery in Muzaffarnagar district in U.P. It is one of
the largest single stream molasses-based distilleries in India. Strategically located in
close proximity to two of the Companys largest sugar units (Khatauli & Deoband), the
distillery has an assured access to consistent supply of captive raw material (molasses).

The distillery has a flexible manufacturing process, allowing it to produce high
quality Extra Neutral Alcohol (ENA), Rectified Spirit (RS), Specially Denatured Spirit
(SDS) and Ethanol, based on the market dynamics and requirements. However, over the last
few years, the distillery has been producing the bulk of ethanol and supplying it to OMCs
for blending in petrol. The ethanol produced from the distillery is also supplied to other
major players in the O&G sector.

Further, due to substantial increase in cane crushing across all of its seven sugar
units, and the resultant increase in generation of molasses, the Company decided to set up
a 160 KLPD molasses based distillery adjacent to its already operational sugar unit at
Sabitgarh. The decision was also aligned to the Companys participation in the
Scheme for extending financial assistance to sugar mills for enhancement and
augmentation of ethanol production capacity introduced by the Central Government. The
distillery has been commissioned subsequent to the year in the last week of April 2019.
This new distillery will start supplies to OMC from June 2019.

In line with the new directives and guidelines of the GoI regarding effluent treatment,
and to ensure zero liquid discharge, the Company has set up the new distillery with a
concentrated spent wash (termed as SLOP) fired incineration boiler. Also, the existing
bio-composting based effluent treatment system at the Muzaffarnagar based distillery is
under upgradation to incineration-based effluent treatment system.

Performance Overview

Ethanol, also known as fuel alcohol, is blended with petrol as a green fuel. Apart from
augmenting the countrys fuel self-sufficiency with cost advantage, it helps in reducing
the nations carbon footprint and enabling savings of precious foreign exchange on import
of crude oil. As per the bio-fuel policy of the Central Government, ethanol blending is
targeted to be 20% by 2022, creating continued demand from the indigenous suppliers. The
off-take by OMCs has been steadily improving. Triveni has aggressively participated in all
tenders issued by the OMCs for procurement of ethanol, and has secured sizeable
quantities.

The distillery unit continued to operate efficiently and achieved high levels of the
fermentation and distillation efficiencies during the year. During the year under review,
approximately 97% sales of the distillery was of ethanol, with the balance 3% being ENA.
The total production of the distillery for FY 19 has been 48.035 million litres, while
sales stood at 51.2793million3litres.

Outlook

The Central Government has embarked on an ambitious ethanol blending programme under
its National Biofuel Policy, and is keeping a strong focus on enhancing the ethanol
blending percentage, with the aim of going to over 20% in future. Various financial
assistance schemes have also been announced by the Central Government to promote new
capacity additions.

In view of continued higher sugarcane crush in the state of Uttar Pradesh in SS 2018
-19, there has been a glut of molasses. Since the introduction of the scheme by GoI to
promote production of ethanol, many new distillery projects have been announced, set up
and commissioned, leading to increased distillation capacity in UP. The Companys new
distillation capacity, operationalised in Q1 FY 20, would lead to increased ethanol
supplies to OMCs and thus additional revenue. The additional capacities will also help the
Company to produce ethanol from B-heavy molasses, if required and found viable.

ENGINEERING BUSINESS

The Industrial Gears industry

The Gears Industry in India is categorised into Industrial Gears and Automotive Gears.
The Industrial Gears segment manufactures Gears, Gearboxes, Geared Motors and Gear
Assemblies. Industrial gearboxes are a common type of power transmission devices, used as
a component in various varieties of machineries and heavy electrical equipment. The
majority of the players in the domestic market manufacture standard products i.e.
standardised catalogue type, as it requires less customisation, both in terms of design
and engineering. There are only a few players in customised gears manufacturing, which
requires advanced technology and stringent adherence to international standards, with
requisite infrastructure and highly experienced and skilled manpower.

Demand Drivers

The major demand driver for Industrial Gears is industrial capital expenditure, mainly
in sectors like Power, Steel, Refineries, Fertilisers, Cement, Textiles, Sugar, Mining,
Power, etc. The infrastructure-related investment in the country stimulates the growth of
heavy industries, which in turn fuels the growth of the industrial gearboxes market.
Trivenis core product - High-Speed Gears - is used for all turbo applications like gas
turbines, steam turbines, water turbines, compressors, pumps, blowers and test rigs
meeting AGMA and API design standards. Demand for these products is linked to industrial
growth and the capital goods sector. However, part of the demand is generated from the
exports undertaken by domestic OEM customers, which is linked to global demand of products
related to Capital spend. Aftermarket opportunity demand is linked to plant utilisation
levels, cost pressures on maintenance budgets, policy of keeping insurance spares,
emergency breakdowns and alternate sourcing vis--vis global OEMs to bring down product
life cycle costs. Further, considerable demand may arise from the Defence sector as a
result of opening the sector to private players and due to the focus on Make in India.

Business Opportunities

There are some indications of fresh capital investment in industrial segments like
steel, cement, sugar and oil & gas, which are customers of the Triveni Gears business.
Increased acceptance of engineered capital goods from India in global markets has boosted
sourcing from quality-conscious credible Indian manufacturers.

The Government of Indias Make in India initiative has led to new opportunities for
diverse engineered products, and Trivenis Mysuru facility is actively participating in
many such indigenous development projects.

The Defence Procurement Policy 2016 focusses on self-reliance for various equipment in
Design, Development and Manufacture by the Indian industry. Most of the new projects
envisaged by the Defence sector are customised to the requirement for critical equipment,
offering substantial value to the existing portfolio of Triveni Gears rotating machinery.
Triveni Gears is initially focussing on Naval Defence markets and has gained some foothold
in the critical turbo pumps space.

Industry Outlook

The key demand sectors for gearboxes are Power, Cement, Steel, Refinery, Fertiliser and
Petrochemical. In 2018-19, the overall power sector started showing signs of improvement
and fresh investments led to a growth in demand. The order booking and enquiries have
increased during the year. Government schemes like DDUGJY (Deen Dayal Upadhyay Gram Jyoti
Yojana) and Integrated Power Development Scheme (IDPS) under GoIs focus of attaining
POWER FOR ALL is also helping to boost momentum in the sector.

Similarly, the cement industry has shown growth through brown field expansions and
requirement for efficiency enhancements. Infrastructure development, including development
of smart cities, highways etc., is giving the much-needed push to the sectoral demand.
This is also leading to growth in the steel industry. Greenfield expansions in the steel
sector have resulted in increased orders in the past year.

The Governments guidelines for compliance to Euro VI norms emission from April 2020 is
driving investments in the Refinery segment. Similarly, the Government is also planning to
revive the Fertiliser sector, which should show demand in the coming quarters. Complete
revamping of current Petroleum, Petro-Chemical Investments in Regions (PCPIR) policy seeks
to encourage long-term investments in the segment. This in turn shall see foreign
investments in the segment. Free trade agreement is being promoted to directly aid this
sector, which shall aid exports from the country.

Market Overview

The order booking for gearbox for steam turbines has shown an encouraging growth in the
financial year under review, both from domestic and exports regions. In the Oil and Gas
sector, the market witnessed announcement of expansions, which may result in new orders
from FY 20 onwards. The expected growth from Fertiliser market has increased Trivenis
order flow for many high speed applications through Indian and Global OEMs. This trend is
likely to continue in the coming years, both for Fertilisers and Oil & Gas segments.

Thermal plant segment had very few brownfield expansions and greenfield projects, which
is going to affect the orders for Booster pump applications and also for Gears used in
Hydraulic couplings in the coming years. Due to high prices and low availability of gas,
gas turbine power generation is still operating at very low capacity.

Business Overview

OEM

During FY19, both domestic and export markets have shown positive growth, which has
resulted in increased order booking (excluding long tenure order) and turnover.

Major OEMs for high-speed turbo applications, such as Steam Turbine, Pumps and
Compressors, have shown growth in the domestic as well as in export markets. Gears
business has witnessed good growth in turnover and bookings except long term orders. The
business is actively focussing on supply of Gearboxes to global OEMs for integrally geared
compressor, a foray into very high speed applications. The growth in order booking
includes diversification into machining of Wind gear components to utilise excess
capacity.

Being one of the leading global players in industrial gearboxes with a fleet of over
8,500 Triveni Gears and 900 replacements of more than 80 global brands, there is an
increasing acceptance by multinational OEMs and industries for Triveni products for their
global projects.

Triveni Gears is a dominant player in High speed Gears segment and has considerable
acceptance by OEMs for high power applications, including the Oil and Gas segment. Triveni
has been maintaining over 80% market share in this segment in the domestic market and has
started expanding the market reach to select overseas markets for select applications.

Triveni also supplies gearboxes for Hydel application and other low-speed applications,
including reciprocating pumps and compressors, mill drives and pump drives.

Triveni is exploring additional avenues of growth, and thus utilising its existing
infrastructure for component manufacturing aligned to customers drawing on a serial
production basis. Rate Contracts for these are being modified to reflect the same.

This segment contributes 35% to the overall turnover of Gears business.

Loose Gearing

The market dynamics of this segment are similar to the OEM segment. This segment
demands a capacity availability of critical machines like hobbing, teeth grinding, as well
as surface grinding.

Exports

Having appointed international agents across select geographies, the business has
witnessed a growth of 7% in order book  a trend that is likely to continue in the
coming years.

Performance Overview

The performance of Triveni Gears has been good during the year under review. The
turnover and outstanding order book has witnessed a growth of 19% and 31% respectively.

In the Non-Geared business for Defence sector, the Company is working towards aligning
itself to the Make in India initiatives for various products, which should augur well for
the business in coming years.

 Triveni has witnessed 7% increase in the order book as compared to FY 18.

 Approved as supplier to major global Pump OEMs and received multiple orders for
overseas installations. OEM & Retrofitting business has witnessed 9.4% & 24%
growth in order book respectively.

Indian Water Industry

Over the past one year, the Government has paid greater attention to improving water
supply and wastewater treatment practices, especially in urban areas. However, urban local
bodies have not yet been completely successful in addressing inherent issues, such as
delays in project implementation, lack of financial autonomy, technical expertise, and
high level of non-revenue water. There is a great scope of improving service delivery and
scaling up infrastructure investment. Water sector has witnessed a surge in activity in
terms of launch of new programmes and schemes, as well as projects uptake, during3FY319.

Market Analysis

India, home to 16% of the worlds population, has only 2.5% of the worlds land area
and 4% of the worlds water resources at its disposal. Precipitation in the form of rain
and snowfall provides over 4,000 trillion litres of fresh water to India.

1. The demand for water has been increasing at a high pace in the past few decades. The
current consumption in the country is approximately 581 trillion litres, with irrigation
requirements accounting for a staggering 89% followed by domestic use at 7% and industrial
use at 4%.

2. The rapid increase in population, urbanisation and industrialisation has led to a
significant increase in water requirement. In the next decade, the demand in water is
expected to grow by 20%, fuelled primarily by the industrial requirements, which are
projected to double from 23.2 trillion litres at present to 47 trillion litres. Domestic
demand is expected to grow by 40% from 41 to 55 trillion litres while irrigation will
require only 14%  these will push up the requirements to 592 trillion litres, up
from 517 trillion litres currently.

3. The per capita availability of water has significantly come down and is likely to
decline further with the growing population and demand. As per the Ministry of Water
Resources, per capita water availability in 2025 and 2050 is estimated to come down by
almost 36% and 60% respectively.

4. It is believed that these issues can be resolved by implementing innovative
solutions for more efficient water management and wastewater recycling & reuse.

Demand Drivers

The waste water reuse is rising up the agenda form any industries, including power,
refining & petrochemicals, pharmaceuticals and steel. This is being driven by stricter
regulations around freshwater consumption and wastewater discharge. Municipal sector
contributes about 60% revenues in the market.

There is an imminent need to deepen our understanding of our water resources and usage,
and put in place interventions that make water use efficient and sustainable. The Central
Governments focus on Namami Gange for cleaning of Ganga, JICA funded projects in Delhi
& Karnataka, AMRUT programmes for Pollution abatement, Recycling and Re-use, Stricter
Vigil by National Green Tribunal will be key demand drivers going3forward.

Anticipated CAGR & Business Growth Potential 2020

Sector*

CAGR

Investment

2020

USD Billions

Water & Wastewater

15.3%

16.2

Industrial Water

9.7%

2

*Includes all types of investments in respective sectors

Government Policy Framework

The Central Government has unveiled initiatives that promise to transform Indias
ever-expanding cities and large towns to rival those in developed nations. In order to
speed up the construction of water and wastewater projects across the country, the
Government is adding new incentive tools  such as priority release of budget
allocations on the basis of reforms implemented by states in the previous year, besides
also undertaking a review of water tariffs.

The Government has vigorously worked for cleaning the Ganga River, providing safe
drinking water to all Indians, and efficient use of water in irrigation using
micro-irrigation techniques. Unveiling the development vision for the next decade, it
would focus on 10 key areas, including job creation, physical and social infrastructure
building, pollution-free nation and clean rivers. The Budget also saw allocation of
38,041 crore for 2019-2020 compared to 37,612 crore in 2018-19. The development of 100
Smart Cities will also catalyse significant opportunities in water and wastewater
management.

Business Opportunities

Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Smart Cities
Mission worth 3 9,000 crore will create significant business opportunities. These two
schemes will create basic infrastructure services in water supply and sanitation,
drainage, solid waste management and sewage treatment. Smart Cities programme, with a
budget of over 36,000 crore, and AMRUT scheme with another 36,000 crore are expected to
boost the business opportunities.

Namami Gange programme of 3 20,000 crore will create Hybrid Annuity Model (HAM)
based projects, with focus on arresting the municipal and industrial pollution entering
into the rivers, along with creation of 2,500 MLD municipal sewage treatment capacity.
This programme will also implement zero liquid discharge (ZLD). All the industries have to
install real-time online effluent monitoring stations. As water availability and quality
declines, and pressure grows on industries to build CETPs and re-use water, Triveni Water
will focus on CETPs, recycling and re-use projects with latest3technologies.

TRIVENI WATER  BUSINESS PERFORMANCE

Performance Overview

Water business has witnessed significant growth in terms of order booking during the
year. The Company recorded historical highest annual turnover of 3 249.15 crore and
entered into positive P&L zone after a gap of 5 years. With focus on water &
wastewater treatment and management, it has been successful in securing five new EPC
orders in municipal and industrial segments in Delhi, Uttar Pradesh, Rajasthan and Punjab.
Municipal segment has seen a surge of new orders in Hybrid Annuity Model (HAM), initiated
by NMCG in cities like Mathura, Kanpur, Allahabad, Kolkata, Bhagalpur, Agra, etc.

At present, it is executing 14 EPC jobs located in Delhi, UP, Karnataka, Odisha, West
Bengal, Tamil Nadu, Rajasthan and Punjab.

The Company is pursuing opportunities in desalination projects and hopefully will enter
SWRO projects. Technology gap is being analysed and partnership with leading global
players is being3explored.

Going forward, majority of investments are expected from the Central Government through
NMCG, besides state funding from Karnataka, UP, Delhi, MP, Rajasthan and Gujarat. The
Company is well positioned to undertake more jobs in its chosen area of expertise and will
continue to evaluate opportunities in neighbouring countries on case-to-case basis.

Key Highlights

1. Secured new EPC orders worth 3687.71 crore (net of GST) and Equipment Orders of 3
30.26 crore (net of GST). All new EPC orders are with O&M component worth 3312.42
crore, with duration ranging from 5 years to 153years.

2. Secured Mathura Sewage Treatment Plants (STPs) and associated Infrastructure on
Hybrid Annuity Model (HAM) funded by National Mission for Clean Ganga (NMCG) under One
City One Operator concept. Major scope includes design & construction of 30MLD STP at
Masani and 20MLD Tertiary Treatment Plant (TTP) at Trans Yamuna for supplying treated
water to IOCL, Mathura Refinery for reuse. The O&M period is 15 years. This project is
unique, wherein treated sewage is sold to IOCL and revenue is generated for Client (UPJN).

3. Secured Rehabilitation & Upgradation of Kondli Sewage Treatment Plant including
Phase I (45.5 MLD), Phase II (113.7 MLD) & Phase III (45.5 MLD) capacities from Delhi
Jal Board. This is a JICA funded project and is technically challenging, wherein existing
old STP is to be demolished and upgraded for very stringent outlet parameters without
disrupting the existing flow and quality of treatment. The entire facility will have
O&M period of 10 years. This order has been secured in JV with Gharpure and GSJ, with
the Company in lead with 80% share.

5. Secured Barmer 15 MLD RO Plant from existing client Barmer Lignite Mining Company
Limited (BLMCL). Water coming out of lignite mines containing high TDS levels is not
suitable for disposal, and therefore, RO plant will be installed to bring down the TDS
levels. The O&M on this plant will be for 15 years.

6. Won order for 50 MLD CETP from Punjab Dyers Association, Ludhiana, for treating
wastewater coming from textile dyeing units. SBR technology will be used to treat the
wastewater. The O&M period is 5 years. CETP of this capacity will be good for future
reference perspective.

7. Completed well sinking of Bengaluru ISPS, using well-sinking methodology for 210 MLD
capacity. This is one of the largest facilities in the city to be constructed with such
construction methodology.

Outlook

Water sector has been largely plagued by underfunding issues. The continuous thrust by
Central Government agency NMCG is important for the sector. Projects on HAM model will be
on test and successful commissioning within time, and will give boost to rolling out of
more projects by NMCG. It is evident that investors have shown confidence in Water HAM
projects and majority of projects have achieved Financial Closure.

AMRUT funding majorly from Central Government will catalyse significant opportunities
in this sector. JICA is funding new water projects in Delhi and Karnataka, and new bids
are expected from these states in the coming quarters. CETPs for

Industrial clusters like textile and tannery are being built, mainly due to
intervention of NGT, and it is expected that few more opportunities will arise in FY 20.

Sea Water Desalination projects are lined up in Gujarat on PPP/ HAM concept and
expected to be rolled out in first quarter of FY 20. The Company will evaluate these
opportunities and, if required, will bid in partnership with other players. The
Desalination business is expected to have huge potential in future and may provide
opportunities to the Company. Initiatives of the new Government at Centre will be
instrumental in driving the way forward for water and wastewater business for next five
years.

FINANCIAL REVIEW

Rs. lakh

Description

2018-19

2017-18

Change %

Income from Operations (Gross)

3,15,156

3,41,186

-8%

EBITDA

37,668

30,013

26%

Depreciation and Amortisation

5,695

5,536

3%

Finance Cost

6,799

8,534

-20%

Profit Before Exceptional / Non-Recurring Items and Tax

25,174

15,943

58%

Exceptional Income

2,035

Tax

5,153

4,969

4%

Profit After Tax

22,056

10,974

101%

Other Comprehensive Income

-137

122

Total Comprehensive Income

21,919

11,096

98%

The much improved financial performance of the Company is as a result of all businesses
posting better performance as compared to the previous year, particularly distillery
business and Engineering businesses. The improved productivity and efficiency level of the
sugar operations as well as higher income from sugar linked businesses, Cogeneration and
Distillery, have contributed significantly to the overall profitability.

The segment results of Sugar business include export losses of 381.25 crore (higher by
360.44 crore over previous year). The applicable subsidies (production subsidy, freight
subsidy on exports and buffer stock subsidies) estimated at 3 102.07 crore will be
accounted for after fulfilment of the prescribed conditions, including necessary export
obligation under MIEQ. Apart from the increased productivity, the improved performance of
the Sugar business is also due to several interventions by the Government, including
introduction of Minimum Selling Price (MSP) of sugar prescribed by the Central Government
with effect from June 2018 - it was initially prescribed at 329 / Kg and was increased to
331 / Kg in February 2019. Along with MSP of sugar, the Central Government also regulated
supply of sugar by introducing monthly sale quota for each sugar mill. The aforesaid
factors helped to maintain and support sugar prices. With a view to liquidate surplus
sugar stocks, the Government also introduced the scheme of Minimum Indicative Export
quantity (MIEQ) of 5 million tonnes for the Sugar Season 2018-19 pursuant to which every
sugar mill was obligated to export prescribed quantity of sugar. The mandatory exports
scheme was extremely vital in view of substantial surplus sugar stocks held in the
country. .

The performance of distillery operations has been substantially better than the
previous year in view of higher production, higher sale volume and lower raw material
cost. The performance of cogeneration operations was satisfactory and the profitability
was marginally lower than the last year as there was no income from Renewable Energy
Certificates (RECs) as compared to an income of 310.11 crore in the previous year.

There was a significant rise in the profitability of Engineering business, particularly
the Water business wherein there has been a marked turnaround due to increased activities
emanating from significant new orders of 3 1,030.4 crore (including O&M) received
during the year. In the case of Gears business, there has been healthy increase in
turnover, profitability and orders inflow (excl. long tenure orders) which has led to much
improved3performance.

The Company was able to achieve reduction in the finance cost by 20% despite increased
working capital requirements as a result of increase in sugar stocks (in quantitative
terms) by 27% at the yearend. It has been made possible due to receipt of buffer stock
subsidy to the extent of 311.23 crore and reduction in interest cost by 48% on term loans
as average term loan utilisation has been lower by 27% during the year and the term loans
availed during the year carried concessional interest rates under soft loans / interest
subvention schemes of the3Government.

RAW MATERIAL AND MANUFACTURING EXPENSES

Rs. lakh

Description

2018-19

2017-18

Change %

Cost of material consumed

2,77,115

2,59,820

7%

Percentage to sales

88%

76%

Manufacturing expenses

24,650

20,692

19%

Percentage to sales

8%

6%

Raw Material Cost & Manufacturing expenses have increased by 7% and 19%
respectively. In Sugar business, such costs are directly linked to the production
undertaken rather than to the sales. The increase in such expenses is attributable to
higher sugar cane crush in the Sugar business, higher production volumes in distillery
business as well as increased turnover of Gear and Water business.

PERSONNEL COST, ADMINISTRATION EXPENSES AND SELLING EXPENSES

Rs. lakh

Description

2018-19

2017-18

Change %

Personnel cost

22,387

20,240

11%

Percentage to sales

7%

6%

Administration

7,768*

7,491

4%

Percentage to sales

2%

2%

Selling expenses

2,551

2,035

25%

Percentage to sales

1%

1%

*excluding loss on Third-party sugar exports.

The increase in personnel cost is reflective of annual salary increase. The increase in
Administrative expenses is nominal. Selling expenses have increased by 25%, mainly due to
higher sales volume in distillery business which takes place on FOR basis.

SEGMENT ANALYSIS

Rs. lakh

Revenue

PBIT*

Description

2018-19

2017-18

Change %

2018-19

2017-18

Change %

Business Segments

- Sugar

2,94,777

3,33,016

-11%

30,303

24,123

26%

- Engineering

38,223

28,744

33%

4,547

1,748

160%

- Others

6,200

6,088

2%

7

20

-65%

Unallocated/inter unit adjustment

-24,044

-26,662

-2,884

-1,414

Total

3,15,156

3,41,186

-8%

31,973

24,477

31%

*Before exceptional items

The Company has two major business segments - Sugar business and Engineering business.
Sugar business comprises sugar manufacturing operations across 7 Sugar mills, 3 incidental
cogeneration facilities at three of its Sugar mills and 3 Cogeneration plants located at
two of its Sugar mills and a standalone Distillery, all located in the State of U.P. The
Company has recently installed a new 160 KLD distillery in the State of U.P. at its sugar
unit at Sabitgarh which has become operational in Q1FY 20. Cogeneration plants and
Distillery source captive raw materials, namely, bagasse and molasses, from the Sugar
mills. Engineering business comprises of Gears manufacturing at Mysore and Water and Waste
Water Treatment business operating from Noida, UP.

SUGAR BUSINESS SEGMENTS

Sugar Operations

Rs. lakh

Description

2018-19

2017-18

Change %

Turnover

2,53,100

2,99,923

-16%

PBIT

7,921

11,559

-31%

PBIT/Turnover (%)

3%

4%

Cane crush (MT)

76,84,100

73,38,500

5%

Recovery (%)

11.78%

11.29%

0.49%

Cane cost (landed) ( /MT)

3,344

3,337

0%

Production of sugar (MT)

9,05,431

8,28,517

9%

Volume of sugar sold (MT)

7,59,067*

7,61,276

0%

Average domestic sugar realisation price ( /MT)

31,456

36,244

-13%

*including exports of 5,816 MT

The operational efficiencies and the productivity of the sugar operations in terms of
recovery have further improved during the year.

In the previous year, the benefit of higher sugar realisation prices has largely been
offset due to substantial inventory write down of 3198.87 crore considered at the year
end upon steep decline of sugar prices. The current year considers export losses of
381.25 crore (higher by 360.44 crore over previous year) in respect of export
obligations of 86380 MT for the Season 2018-19 as against total obligation of 129465 MT.
The entitlement of subsidies (production subsidy, freight subsidy on exports and buffer
stock subsidies) estimated at 3 102.07 crore will be accounted for after fulfilment of
the prescribed conditions, including necessary export obligation under MIEQ.

Co-generation Business

Rs. lakh

Description

2018-19

2017-18

Change %

Turnover

20,279

20,493

-1%

Income from carbon

0

1,011

-100%

credit/REC

Total turnover

20,279

21,504

-6%

PBIT

9,111

9,890

-8%

PBIT/ Total Turnover (%)

45%

46%

Power Generation  million

266

275

-3%

units

Power export (%)

66%

66%

The profitability in the Cogeneration business is lower as previous year includes
income from REC to the extent of 310.11 crore, whereas no such income accrued in the
current year.

Distillery Business

Rs. lakh

Description

2018-19

2017-18

Change %

Turnover

21,398

11,589

85%

PBIT

13,271

2,674

396%

PBIT/Turnover (%)

62%

23%

Operating days

312

256

21%

Production (KL)

48,035

26,624

80%

Sales Volume (KL)

51,279

28,093

83%

Avg. realisation price of

41.51

39.36

5%

alcohol /litre (net of

excise duty)

The improved profitability in FY 19 is due to increase in operating days and higher
capacity utilisation which resulted in higher production by 80% and corresponding increase
in sales volume. The higher profitability is also contributed by lower raw material
prices.

The Companys new 160 KLD distillery at its Sabitgarh sugar unit will further increase
its distillation capacity and is also setting up an incineration boiler at its existing
distillery which will enable it to operate for 330 days while ensuring zero
liquid3discharge.

ENGINEERING BUSINESS SEGMENT Gears business

Rs. lakh

Description

2018-19

2017-18

Change %

Turnover

13,308

11,177

19%

PBIT

3,814

3,142

21%

PBIT/Turnover (%)

29%

28%

The Gear business has performed well, both in terms of turnover and profitability, and
has received orders of 3177.76 crore during the year, including long tenure orders of 3
26.00 crore. The outstanding order book as on March 31, 2019 stood at 3176.18 crore
including orders of 3 74.90 crore executable beyond FY32019-20. The Company is exploring
new products, geographies and actively engaged with the Defence Sector to tap business
opportunities to further improve its turnover and3profitability.

Water and Wastewater Treatment Business

Rs. lakh

Description

2018-19

2017-18

Change %

Turnover

24,915

17,567

42%

PBIT

733

-1,394

PBIT/Turnover (%)

3%

-8%

The turnaround in the performance of Water business during the current year was due to
higher intake of orders, which enabled the business to achieve higher turnover by 42% and
achieved profit of 37.33 crore as compared to loss of 313.94 crore in the previous year.

During the year, orders of 31,030.4 crore (including O&M) were booked as against
orders of 3 161.50 crore (including O&M) in FY318. Orders in hand were at 31,313.59
crore (including long term O&M contracts of 3512.25 crore).

REVIEW OF BALANCE SHEET

Major changes in the Balance Sheet items are explained as hereunder:

NON-CURRENT ASSETS Property, Plant and equipment

During the year, there have been additions to the extent of 353.15 crore. These mainly
include construction of additional molasses tanks and additional sugar storage space for
the Sugar business.

Capital Work-in-Progress

The Capital Work-in-Progress of 3204.77 crore mainly include expenses incurred for the
project of setting up a new 160 KLD distillery at the sugar unit situated at Sabitgarh (3
139.86 crore) and towards installation of incineration boiler in existing distillery at
Muzaffarnagar (348.79 crore).

Income Tax Assets (net)

The income tax assets (net) represents amount receivable in view of various appeals
decided in favour of the Company, the refund procedures of which are in progress.

CURRENT ASSETS

Inventories

Inventories are higher at 32,118.66 crore as on March 31, 2019 from 3 1579.19 crore
as on March 31, 2018. The higher level of inventories held as on March 31, 2019 is due to
27% higher sugar inventories held in quantitative terms and due to higher rate of
valuation. In view of excess production of sugar in the country, sugar is sold as per the
monthly releases announced by the Government for sugar mills.

Other Current Assets

It has increased from 3 86.45 crore as on March 31, 2018 to 3 132.78 crore as on
March 31, 2019, mainly due to higher amounts incurred by the Water business on the
construction contracts in view of increased activities and such amounts remain recoverable
from customers pending contractual milestone billing.

NON-CURRENT LIABILITIES

Equity

Share Capital

It has remained unchanged during the year.

Other Equity

During the year, the reserves and surplus increased by 3197.42 crore (23%) to
31,052.49 crore due to profit earned during the year and transferred to Retained
Earnings.

Borrowings

Total long-term borrowings at the year-end, including current maturities of long-term
borrowings, are at 3 490.49 crore as against 3165.78 crore as at the end of the previous
year. During the year, repayments were made to the extent of 3129.29 crore. The long-term
borrowings comprise loans of 3 364.00 crore availed from the UP Government under Scheme
for Extending Financial Assistance to Sugar Undertakings  2018 (SEFASU -2018) in
November 2018 at a simple interest rate of 5% p.a. & 390.00 crore availed in
February/March 2019 under SEFASU-Distillery Projects (at 50% interest subvention from GoI
for a loan period of 5 years, subject to a ceiling of 6%).

Other Non-Current Liabilities

Other Non-Current Liabilities are higher at 329.47 crore as on March 31, 2019 as
against 31.41 crore as on March 31, 2018 mainly due to recognition of deferred grant in
respect of concessional loan of 3364.00 crore availed from the U.P. Government.

CURRENT LIABILITIES

Borrowings

Short-term borrowings are higher at 3 1,235.41 crore as on March 31, 2019 as against
3 1,076.47 crore as on March 31, 2018. The increase is mainly in view of higher sugar
inventory held at the year end.

Trade Payables

Trade payables are marginally higher at 3637.61 crore as on March 31, 2019 as against
3628.05 crore as on March 31, 2018.

Other Financial Liabilities

Other Financial liabilities are lower at 3 126.09 crore as on March 31, 2019 as
against 3164.26 crore as on March 31, 2018. This is primarily due to lower current
maturities of long term loans as on March 31, 2019.

Other Current Liabilities

Other Current liabilities are higher at 3 135.44 crore as on March 31, 2019 as against
3 79.90 crore as on March 31, 2018. The increase is primarily due to increase in advances
from Customers on account of higher order booking in Water business Group.

RISK MANAGEMENT AND MITIGATION

The Company follows a well-structured Enterprise Risk Management (ERM) Policy, which
requires the organisation to identify the risks the businesses are exposed to and to
categorise them based on their severity. Mitigation plans are laid out for each risk along
with designation of an owner thereof. It is the endeavour of the Company to continually
improve its systems, processes and controls to improve the overall risk profile of the
Company. The ERM policy defines the risk parameters within which the businesses should
operate. It helps to build a discipline within the organisation wherein all business
decisions are taken after assessing the attendant risks and formulating effective
mitigation plans to contain the impact of such risks. Since the Company is engaged in
diversified businesses having completely different risk profiles, Risk Management
Framework for each business has been devised considering its complexity and uniqueness.

Sugar business of the Company is agro based and is largely dependent on uncontrollable
climatic factors and Government Regulations and Policies whereas the Engineering business
relates to capital goods and infrastructure sectors, which are dependent on the economic
growth of the country.

SUGAR BUSINESS

Sugar business is exposed to significant external risks, which mostly are
uncontrollable and thus, it is imperative to optimise the controllable business
productivity and efficiencies on a dynamic basis to counteract the impact of such external
risks. Other internal risks are moderate and are by and large predictable and manageable.

It is the objective of the Company to be amongst the top performers in UP, way above
the average, so that it remains less impacted by the cyclicality associated with this
industry. During Season 2018-19, the Company has achieved recovery of 11.79% (41 basis
points over the previous season), which is 31 basis points higher than the average
recovery achieved in Uttar3Pradesh.

Some of the key external risks which the Sugar business faces with are described herein
below:

Risk

Mitigations

Risk of over dependence on Governments policies and support:

The Government is unlikely to withdraw support as it recognises

There has been excess production of sugar in the country in

that the cane prices are unrealistically high vis--vis prevailing

the last 3 years, with production outstripping demand and

sugar prices and any significant decline in sugar price may

resultantly, sugar stocks in the country are estimated to increase

lead to non-payment of cane dues. For long-term solution, the

to 14.5 MMT as on September 30, 2019 from 10.72 MMT as on

Government has announced a new Biofuel Policy in which it

September 30, 2018 and 3.88 MMTs as on September 30, 2017.

has permitted production of ethanol from B-heavy molasses

In view of excessive supply of sugar, sugar prices had collapsed

and sugarcane juice. It is also offering interest benefits on loan

and the Government had to intervene with various schemes and

availed to set up distillation capacities for the production of

policies to support the sugar prices and to regulate the supplies

ethanol. Subject to appropriate pricing of ethanol produced from

in the market. Besides providing soft loans to the industry to

various feedstocks, it could be a game changer for the industry

pay cane dues, the Government also introduced a policy for

and sugar mills will have the flexibility to regulate production of

mandatory export of sugar by all sugar mills to liquidate surplus

sugar in favour of ethanol.

sugar stocks in the country. All these measures helped sugar

industry to meet challenging conditions.

Risk of Climatic factors:

In the State of U.P., in view of large irrigated areas, the impact of

The climatic factors, such as, monsoon, flood, drought and crop

drought or lower rainfall is not very much pronounced as compared

diseases impact the yield and sugar recovery from cane. Lower

to other monsoon dependent sugarcane producing States such as

yields result in lower cane availability to sugar mills whereas

Maharashtra and Karnataka. Further, cane staff of the Company are

lower sugar recovery leads to higher cost of production.

quite vigilant and after the sowing season, they closely monitor the

growth of sugarcane and disease infestation so that timely action

could be taken to avoid or minimise the damage.

Sugar Price Risk:

The domestic sugar prices are presently not aligned with either international prices
or domestic sugar stock position in view of Minimum Selling Price of sugar prescribed by
the Government along with regulated monthly sales system limit the supplies.

The sugar prices vary based upon demand and supply position in the country. In the
periods of over-production, due to excessive supplies, the sugar prices decline whereas
during period of short-production, due to demand being more than the supplies, the sugar
prices increase. Variation in sugar price has significant impact on the profitability of
the Company.

The Company endeavours to enhance overall realisation price by manufacturing refined
sugar (which forms 40% of the total production) and pharmaceutical grade sugar, which
fetch premium over normal sulphitation sugar.

Working Capital Risk Management:

To meet the requirements of increased working capital, the company deploys a judicious
mix of own funds and borrowed funds so that operations could be managed effectively
without steep rise in the finance cost. Further, the Government also introduces
maintenance of buffer stocks and provide subsidy to meet the inventory carrying cost
associated with the buffer stock.

In view of excessive production in the last three years, the Company is holding
inventories which are 27% higher than as on March 31, 2018 and 46% higher than as on March
31, 2017. Additional borrowings to meet increased working capital requirements would
entail higher finance cost whereas reduction in the quantum of borrowings will increase
the cane dues.

ENGINEERING BUSINESS:

The Gears and Water businesses are in the capital goods and infrastructure sectors and
are largely dependent on the industrial and general economic conditions in the country
which stimulate demand of the products of our Engineering businesses. These businesses are
exposed to the following major risks:

Risk

Mitigations

Risk of economic slow-down:

Gears business

Slow-down in the economy results in sluggish demand of the products of the user
industries, which in turn has adverse effect on investment spend on capital goods required
for capacity creation or modernisation.

While generally the position of slow down still continues, buoyance in demand has been
witnessed in certain business segments relating to our business.  in Products as
well as in services. The Company is also working towards aligning to Make in India
initiative in the Defence sector in various products which is expected to gradually result
in increased sales and product diversification in the coming years.

Scarcity of funds:

Water business

The sluggish demand puts financial stress on the industrial companies and in view of
stressed financials and risk aversion, the lenders generally subject the projects to
stringent diligence before arriving at funding decisions. The user industries are forced
to defer their expansion plans in view of delay in funding, resulting in poor off-take of
capital goods.

In the case of Water business, we had been affected by slow pace of finalisation of
orders for which we had tendered but during the year, we have received substantial orders
which would allow us to operate profitably. We have also secured a prestigious order for
setting up a sewage treatment plant at Mathura under Namami Gange programme on
hybrid annuity terms.

Technology risks:

Being associated with world premier gear manufacturing companies, best technology is
available with the Company.

It is extremely vital for the Engineering business to offer technology and benchmark
efficiencies at par with the competition and in the event of a significant gap in its
offerings as compared to its peers, the customers may not prefer the products of the
Company.

Additionally, the Company is actively engaged in R&D activities to develop its own
products to broad-base its product offerings.

In respect of water business, the Company has access to almost all technologies
currently being used, including through its Israeli associate.

Project delays and payment risks:

On account of financial problems with customers, including non- achievement of
financial closure, the project may get delayed, resulting in credit risks, cost overruns
and blockage of working capital.

The Company does proper diligence on its customers prior to accepting any order, which
includes evaluating its financials, to ensure financial closure of the project, credit
ratings (if any), track record and market feedback, and continues to closely monitor any
financial stress which the customer may be subject to during the execution of the project.

In view of financial stress in certain sectors, the water business is generally not
inclined to accept orders from those sectors except in cases with special merit.

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